Two Words to Save the Planet?

If you want to see a solution to the climate crisis in your lifetime, they might be the two most important words you hear this year: carbon pricing.

Sure, the crisis is a complex challenge with no one solution. But while carbon pricing may not be a silver bullet, it’s one we’re going to need in the chamber – and critically, support is growing all along the political spectrum right when we need it.

First, a quick primer. Carbon pricing as a concept is basically just what it sounds like: attaching a market price to carbon pollution emitted from burning fossil fuels. From there, things get a little more complicated as there are several ways to do it.

Carbon Tax: The simplest approach, a carbon tax assigns a price to each unit of carbon emitted or the carbon content of a fuel, either for designated industries or entire societies. There’s a clear cause and effect: the more carbon you burn and emissions you put into the air, the more you pay. Plus, the price rises over time, gradually putting more and more pressure on people or industries to cut their emissions.

Emissions Trading Scheme (ETS): Usually called “cap-and-trade” in the US, the principle is that a state, provincial, or national government establishes a market with a limit on how much a designated set of industries can emit in a year (the “cap” part). The government then distributes and/or sells allowances to emit a certain amount to everyone in the market. If a company, for example, is going to emit more than it originally bought, it has to buy more from someone else in the market who’s not planning to emit as much (the “trade” part).

Fuel Tax: This is where a government will directly tax a fuel based on the amount of say, coal itself, rather than the carbon it produces when burned.

Hybrid Instruments: An increasingly popular option, hybrid instruments combine elements of a carbon tax and an ETS.

There’s more to say about each of these – and we’ve put together the 2017 Handbook on Carbon Pricing Instruments to say it – but the important thing is that each uses market forces to encourage people or companies to burn less carbon – and so put less pollution driving climate change into the air.

There’s a flip side in that introducing some form of carbon pricing in turn makes low and no-carbon alternatives like solar and wind a lot more attractive because they don’t carry the same costs as coal, oil, or gas. Users save money while investors start shifting more into renewables as demand for the better economic option grows, encouraging more development that encourages prices to drop even further. And on and on in a virtuous cycle.

The important point: done right, carbon pricing shifts the transition to a clean energy economy into high gear. And does it by making one part of our economic system a little more fair, a little more just.

That’s because carbon pricing – as economists would say – helps to internalize externalities. As normal people would say, in many cases, those responsible for carbon pollution – think power plants, fossil fuel companies – aren’t the ones paying the cost of climate change. That goes to kids suffering from more frequent asthma attacks or families watching wildfires devour their houses or a hundred other examples. Carbon pricing reverses that dynamic and puts something closer to the big-picture costs of carbon into the price of burning it.

Best of all, carbon pricing can appeal to pretty much every political persuasion – and in a time when at least in the US, Republicans and Democrats seem to have trouble agreeing on anything other than the virtues of spicy salmon rolls and bacon cheeseburgers – that’s an important thing. More and more conservatives like carbon pricing because – if done right (and that’s a big “if”) – it can significantly cut government regulations and give businesses greater degrees of freedom, while achieving much of the same result. Better yet, carbon pricing can be designed to become revenue neutral, meaning the money generated from the plan goes back to individual taxpayers in one form or another.

On the other side of the spectrum, progressives like carbon pricing because, with the right design, it can help both cut down emissions and make the world a little more fair. Two factors in particular go into making this happen. First, structuring any plan to ensure that lower-income citizens get more in benefits than they personally pay in costs. Second, using a significant part of the revenue generated to actually lower emissions by investing in clean energy – and focusing investment in communities that are already suffering from climate impacts or fossil fuel industry pollution.

It’s not only the urgency of the crisis itself that’s driving policymakers to look at carbon pricing as a feasible strategy for cutting emissions. After promising to cut emissions as part of the Paris Agreement in 2015, many leaders started looking into real-world paths to live up to their commitments. In a world where no country wants to be the one that can’t honor their word, carbon pricing looks like a very attractive and practical path forward.

The French writer Victor Hugo (author of The Hunchback of Notre Dame and Les Misérables, among others) once wrote, “You can resist an invading army; you cannot resist an idea whose time has come.” For those who want to keep talking about glaciers in the present tense and pass a world we can be proud of on to our children, carbon pricing is an idea whose time has certainly come.

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